Italy Approves 4.5bln-Euro Spending Cuts In 2012 To Delay Tax Hike

7/5/2012 11:33 PM ET

The Italian government late Thursday approved 4.5 billion euros in spending cuts for this year, with an aim to reduce the size of the public sector and to delay an increase in sales tax until the first half of 2013.

In a statement, the government said it also plans to save 10.5 billion euros in 2013 and 11 billion euros in 2014 by reducing expenditure.

This amounts to a total of 26 billion euros in savings over three years and will be achieved mainly through 20 percent cut in the number of public sector managers, 10 percent reduction in other public sector staff, limiting health care expenditure, and rational allocation of human resources and materials to public administrations.

Also, the curb on excessive spending will delay a two percentage point increase in sales tax until the first half of 2013. Furthermore, the savings are expected to fund the reconstruction of regions hit by earthquake in May.

The cabinet said that the reduction in spending will not have any impact on the services provided to public by the government entities. On the other hand, these measures will help the country to return to growth and achieve competitiveness on par with other European nations.

The latest steps by Prime Minister Mario Monti is likely to add to the public discontent, already burdened by his deeply unpopular austerity measures. The Monti government's term expires in April 2013.

Official data showed Wednesday that Italy's deficit to gross domestic product increased to 8 percent in the first quarter. The deficit stood at 7 percent of GDP during the same period of last year. Total expenditure rose 1.3 percent annually, while revenues dropped 1 percent.

The Italian economy remained in recession in the first quarter of 2012 with the gross domestic product contracting 0.8 percent quarter-on-quarter. The GDP fell for a third consecutive quarter.

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